Late last year, Commerce and Consumer Affairs Minister David Clark ushered in changes to the Credit Contracts and Consumer Finance Act (CCCFA), which were intended to target loan sharks.
Instead, it has caused banks to closely vet mortgage applicants’ personal finances and spending habits.
After ordering a review last month, Dr Clark this week released the terms of reference for the investigation, which will be undertaken by the Council of Financial Regulators.
Yesterday, in an interview with Newstalk ZB, Dr Clark indicated he thought the banks had overreacted to CCCFA.
This came as a surprise to the New Zealand Bankers’ Association chief executive Roger Beaumont, who said banks were just following the rules set by the Government.
"Banks take their obligations to comply with the law very seriously. That was the case before the rule change and remains the case," he said.
He welcomed the investigation.
Speaking later in the day to the Otago Daily Times, Dr Clark was more diplomatic and would not directly say whether he thought banks were overreacting.
He acknowledged stories in the media, particularly some from his home town about people being declined mortgages over Kmart shopping trips and therapy sessions, were concerning.
The review would get to the bottom of what was causing such cases, he said.
"Nowhere in the regulations does it say you can’t have fish and chips, go to Kmart or have Uber Eats.
"Those things are not to be found in the regulations anywhere," Dr Clark said.
He stood by the Government’s changes and said they were put in place to ensure people were not put into financial hardship by loan sharks.
Dr Clark ordered the investigation to ensure there were no any unintended consequences resulting from the changes.
He would not be drawn on whether he thought the rules were working as intended, but said in the past there had been a real issue with irresponsible lending.
"The changes, from what we can observe so far, are from the margins and that is what we would expect, but I don’t think we can leap to any conclusions until the review has run its course."
Dr Clark believed there could be a variety of factors for the banks acting as they were, not just the CCCFA.
He cited global economic conditions and the new changes to loan-to-value ratio [LVR] rules as some examples.
"It might be that the legislation takes some time to bed in because some banks weren’t as prepared as others."
Dr Clark was meeting representatives of most of the major banks this week.
He could not put a timeframe on when there might be changes to the legislation if the review found there was a need.
"I’ll absolutely commit to listening to and responding to any recommendations that come out of that inquiry."
